The need for an asterisk

by · April 19, 2016

$55 billion is a lot of money. And when that represents the net income for all of US agriculture, it is still a lot of money. However, compared to the more than $130 billion in net farm income two years ago, the estimated 2016 revenue is a major decline in cash flow coming from sales of grain, livestock, fresh produce, and all of the commodities generated on American farms.

When the USDA made its initial projection last fall that 2016 income would be down along with precipitous drops in 2014 and 2015, farmers tightened their belt again. But a few brief comments last Thursday from the USDA’s chief economist revealed that US farmers are not doing as well in the aggregate as many people may have thought.

Dr. Robert Johansson testified to a US House Agriculture Subcommittee during a hearing on the growing farm financial pressure. He detailed Chinese economic challenges that have curtailed exports to that nation. He discussed commodity exports and their decline due to competition from other nations and the negative impact of currency relationships. He also discussed bans placed on US poultry because of avian influenza, and other barriers to trade.

Johansson also noted the financial safety nets in the 2014 Farm Bill which were created to soften any financial collapse of agricultural revenues. And he added that government payments to farmers which were $10.6 billion for the low priced 2014 crop would rise to $13.9 billion for the further depressed price of the 2015 crop. Those funds will be distributed to farm program participants in October in the next federal fiscal year.

But wait a minute! Johansson testified that US farmers would receive $13.9 billion in calendar year 2016, a year in which net farm income is projected to be just under $55 billion. Simple grade school math indicates that one quarter of farm income this year will come from farm programs, not grain or livestock receipts, but from farm programs. 25%!

That pushes down actual receipts from agricultural production to just over $40 billion. That is not much for all of the blood, sweat, and tears of 1.9 million farmers who are working 80-100 hours a week to produce food for US and global consumers.

Johansson followed his comments by saying, “Lower prices for crops imply a slightly lower forecast for overall farm incomes. The new farm programs will benefit many producers.” Then the USDA economist noted, “Despite slightly lower expected net farm income in 2016, we still project that a majority of farm households will see increases in household income in 2016.” But wait, where does that income originate?

Johansson did not say in his prepared testimony, but that increase in farm household income originates from a spouse’s employment in town. Farm household income would be negative for a majority of US farmers, were it not for a second job for the farm operator, and a spouse’s employment.

The economist concluded his testimony saying, “Our initial projections show that both on–and-off-farm incomes for all three groups (sizes of farms) are expected to rise slightly in 2016 compared to 2015. In general, this means that the majority of farm households are in a relatively stable position going into the year.”

While Dr. Johansson is much more learned than most of us, his comments must be respected. But they need an asterisk, leading to a footnote. That footnote should say, “While farm families are doing well financially, it is the result of off-farm income and farm programs. Commodity prices are too low to sustain the typical US farmer and his efforts on behalf of all of us.”